IM 25: Bad for South Dakota

The WasteWatcher

November 1, 2018 — Spencer Chretien

On Tuesday, November 6, South Dakota voters will decide whether to approve Initiated Measure 25 (IM 25). This measure would increase taxes on cigarettes by $1 per pack and increase the wholesale tax on tobacco products from 35 to 55 percent. The revenue, it is claimed, will be devoted to the state’s four technical schools. These institutes’ mission is to offer “associate degree, certificate, and diploma programs in the state’s high-need career fields.”

There are some significant problems with IM 25. Generally, tobacco tax increases are sold to the public as a way of improving public health; to public officials behind closed doors, they are sold as a way of raising revenue that allows politicians to avoid prioritizing their spending. Which is it?

Increasing tobacco taxes is a notoriously unreliable means of increasing revenue. South Dakotans who live close to Nebraska, North Dakota, or Wyoming can simply make purchases in those places, where cigarette taxes are much lower. Or they can buy cigarettes on Indian reservations. As tobacco is often purchased with other items, South Dakota will lose out on more than just cigarette tax revenue because of increased out-of-state purchases. As the smoking rate declines, less revenue is raised anyway. But the need to fund state programs remains; thus, increases in cigarette taxes often lead to increases in other taxes in the future.

The promise that increased revenue from tobacco taxes will be aimed at technical institutes is another claim that merits skepticism. Politicians can always choose to divert revenue wherever they want. In fact, this has happened before in South Dakota and states across the country. When South Dakota increased tobacco taxes in 2006 through a referendum, the money was supposed to go to education, healthcare, and property tax relief. In 2015, it was diverted to the general fund. Three years later, we are back to where we were.

Even if all goes as planned and the revenue is used for technical institutes, IM 25 contains no protections against waste, fraud, and abuse. It is simply a blank check. Moreover, it does not do anything to address the real problem, which is the high cost of education. IM 25’s proponents point out that South Dakota’s technical institutes have higher tuition than neighboring states and the tax increase is needed to bring down tuition. But perhaps South Dakota’s Board of Technical Education could learn from what other states have done to keep costs lower. Perhaps the real issue is a lack of incentives for educational institutions to cut costs, compete, and offer the best value to students to keep them in South Dakota.

If tobacco tax increases do in fact result in increased revenue, under normal circumstances that revenue is in the hands of state lawmakers, who often blow it on wasteful projects or use it to mask the need to cut spending. But at least politicians can be fired by the voters. Conditions under IM 25 would be worse, because the funds will be at the disposal of the nine unelected, unaccountable bureaucrats at the state Board of Technical Education.

Presidents of technical institutes in South Dakota are paid more than the governor and much more than the average South Dakota family. As the cost of education has gone up, their salaries have gotten higher. Now they are asking the citizens of South Dakota to hand them a blank check with no oversight. The choice on November 6 is obvious.